Client Newsletter Spring 2010 - Tax - Finance Act 2010

Profession:Dillon Eustace



The Minister for Finance made reference in his Budget in December, 2009 to the importance of the financial services industry and his intention to introduce changes to enhance the competitive position of the Irish Financial Services industry. As a result a number of specific and general measures have been introduced in the Finance Act 2010 (the "Act") to support the theme of encouraging the continued and further use of Ireland for a broad range of financial services.

Key Highlights

Specific Financial Services Industry Incentives

A series of changes to encourage the continued use of Ireland as a domicile for collective investment funds and a location for the provision of management services to UCITS funds domiciled in any EU jurisdiction (see "Investment Management Package" of measures below). The extension of Ireland's favourable financial services tax regime to cover Islamic financing. Favourable changes to the taxation treatment of operating leases. General Incentives also benefiting the Financial Services Industry

Traders/dealers in shares, banks, and insurance/reinsurance companies etc (who normally are taxable at the 12.5% tax rate) will be exempt from tax on certain foreign dividends. For corporates, the extension of the circumstances of when the 12.5% tax rate applies to foreign dividends (as opposed to the 25% tax rate). The introduction of a self-assessment system to make it simplier for non-Irish tax residents to receive Irish dividends free of Irish withholding tax. Improvements in the double tax credit relief available to companies with foreign branches. Extension of the tax measures introduced in 2008 to assist companies in Ireland to attract non-Irish domiciled individuals to work in Ireland. Investment Management Package of Measures


The UCITS IV Directive is designed to facilitate the further development of the cross border funds market in the EU; however tax has been identified as one of the main barriers to the successful implementation of the UCITS IV Directive. In this regard the Act introduces a series of measures to help funds that are seeking to benefit from the implementation of UCITS IV Directive.

Amongst other things the UCITS IV Directive provides that UCITS management companies located in one EU jurisdiction may manage UCITS funds domiciled in another EU jurisdiction. There are concerns in various EU member states that the appointment of a management company could bring a foreign UCITS within the charge to tax in the management company's home jurisdiction. The Act provides that in the case of an Irish management company managing a non-Irish UCITS, which is not otherwise Irish tax resident, the non-Irish UCITS will not be taxable in Ireland as a result of appointing an Irish UCITS management company (i.e. the management company will not bring the profits of the foreign UCITS within the charge to Irish tax) and such funds will be treated as foreign funds for the purposes of Irish unit-holders with comparable tax rates to investments in Irish regulated funds.

Stamp Duty

The Act provides for relief from stamp duty arising on the transfer of funds assets under fund mergers and reorganisations thereby providing for the effective reorganisation of funds into a Master/Feeder structure (which are now permitted under UCITS IV). However it should be noted these provisions are not restricted to UCITS and therefore this should increase Ireland's attractiveness as a jurisdiction of choice for the amalgamation of non-UCITS.

The Act also removes a potential technical exposure to Irish stamp duty arising on the transfer of assets between different sub-funds within the same unit trust. These provisions are effective from the passing of the Act.

Non-Irish Resident Declarations

Prior to the passing of the Act Irish regulated funds were required to deduct exit tax when making a payment to an investor unless the funds were in possession of a declaration by the investor to the effect that the investor was either not resident or ordinarily resident in Ireland for tax purposes or is an exempt Irish investor. These rules were considered to be a disproportionate burden on the funds industry because the vast majority of Irish domiciled funds in the international funds sector are distributed solely to non-Irish residents and existing procedures under the European Anti-Money Laundering legislation already highlight any investor holding an Irish passport or address. Consequently the Act contains...

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